The restaurant industry is bigger than ever, with everything from food trucks to specialty cuisine establishments opening every day. However, in order to stay competitive, all restaurant owners need working capital. Whether it is for inventory, marketing, equipment, or to cover the cost of catering upcoming events, there are a few working capital solutions that are designed for restaurants.
Merchant Cash Advance
A Merchant Cash Advance (MCA) is a short-term working capital solution that has become very popular with restaurants over the past few years. With an MCA, the restaurant is given an amount of money, which is then repaid to the lender from a percentage of the total volume of credit card sales. This way, if sales are particularly light for a given period, the restaurant will not incur the penalties that come with conventional bank loans for working capital, and payments are taken directly from credit card sales, so restaurant owners do not have to set aside a lump sum in order to make a large monthly payment on a bank loan.
Asset Based Lending
Asset based lending is a loan structured around the total value of a restaurant’s assets (equipment, receivables, inventory, etc.), which is then used to calculate the amount of working capital the restaurant will receive. The assets are used as collateral in order to secure working capital, and the lender takes a risk based on the future revenue of the restaurant. Asset based loans can be arranged quickly with flexible terms, so that restaurant owners can use the working capital without dedicating a majority of their revenue to loan repayment.
Lines of Credit
Lines of credit give restaurant owners access to revolving working capital without taking on large amounts of debt through traditional bank loans. Lines of credit usually have higher spending limits than personal credit cards, plus they offer rewards incentives to encourage use. On top of it all, using lines of credit as working capital and then paying off those bills early will increase your restaurant’s business credit rating – which means you will have the ability to get an even higher spending limit or take out larger loans, if necessary. One of the best things about using a line of credit is that there is no obligation to use it all at once. With traditional bank loans, after funds are disbursed, if the total amount of the loan is not used, you cannot return the remainder. With a line of credit, you can use as much or as little as necessary, without worrying about triggering penalties for paying off the amount owed ahead of schedule.